(I wish I weren't, but unfortunately getting accused by Attorney General Eliot Spitzer of swindling people will do that to you. It has now been almost a decade since Mr. Spitzer keelhauled me over conflicts of interest between analysts and bankers on tech IPOs. As I've said often over that decade, I'm grateful to every one of the millions of people who have given me the chance to earn back their trust. If that group of people includes you, thank you. I am truly grateful. If it doesn't yet, maybe someday...)

(By the way, Eliot Spitzer and I are actually sort of becoming friends now. Life can be pretty surreal sometimes. Anyway, Eliot was kind enough to invite me on his show the other night. When I told him about this latest egregious Wall Street shafting of individual investors, he was apoplectic. All I can say is that Morgan Stanley had better count its blessings that he's not still Attorney General!)

Second, if Morgan Stanley's defense to its employees and clients on the Facebook IPO is the same one it issued publicly—that it followed all rules and regulations—it is missing the point.

Morgan Stanley gave bad news about Facebook to its institutional clients.

Morgan Stanley did not give this bad news about Facebook to its thousands of financial advisors and hundreds of thousands (millions?) of individual clients.

Morgan Stanley can say until it is blue in the face that it followed the letter of the rules and regulations.

What it cannot do is say that it was fair to share bad news about Facebook with some of its clients and not others.

Spitzer's argument was not that Wall Street hadn't followed the rules. It was that the rules were unfair. And that's the point here.In other words, Morgan Stanley cannot look any employee or client in the eyes and say that it followed the spirit of the rules and regulations about selective disclosure. Because it obviously didn't.

The spirit of the rules and regulations is that all clients have equal access to the same important information.

The fact that a company, Facebook, suddenly reduced its business outlook just days before its IPO is highly important information.

Morgan Stanley then shared this information, verbally, with major institutional clients.

Meanwhile, Morgan Stanley said nothing to its thousands of financial advisors and hundreds of thousands of individual clients.

Then, when it came time to price Facebook's IPO, Morgan Stanley allocated a much-larger-than-usual percentage of the offering to the individual clients—the ones who had been kept in the dark about the bad news.

Later, when those individuals and others found out about the bad news, Facebook's stock tanked.

And now Facebook's stock is trading at the same level—~$32—that Morgan Stanley's well-informed institutional clients were reportedly willing to pay for it. And it is trading well below the level that Morgan Stanley's uninformed individual clients were willing to pay.

Importantly, I highly doubt that anyone at Morgan Stanley intended to do anything wrong here. The density of true sleazebags on Wall Street is no greater than it is in any other industry, and the vast majority of people on Wall Street are good, hard-working professionals who are trying to do a good, honest job. I assume everyone at Morgan Stanley, therefore, was just trying to help their clients and follow the rules.

A Morgan Stanley client who wasn't told about Facebook's business slowdown.(Though I do think it's reasonable to have hoped that someone at the firm would have stood up and said, "Wait a minute—this is unfair." There is no information more material than a sudden change in business outlook at a company. And the fact that senior people at Morgan Stanley stood by and watched as this information was shared with some clients and not others is disappointing.)

Nor do I think Morgan Stanley is the only entity that should bear responsibility here. All the other firms in the IPO syndicate did the same thing. And I also think Facebook bears some responsibility: It should have clearly disclosed in its prospectus that its revenue growth had suddenly slowed and that, as a result, it was reducing its outlook for the year. Instead, Facebook merely inserted vague language about how users were continuing to grow faster than revenue.

But the end result at Morgan Stanley was that a handful of big clients received critical bad news about Facebook, and the rest of the firm's employees and clients didn't.

Some of Morgan Stanley's individual clients are reportedly furious about this. And so, reportedly, are some of its financial advisors.

I sympathize with them. If I were a Morgan Stanley client or financial advisor, I'd be furious, too. Because what happened is just grossly unfair.

When Eliot Spitzer went after Wall Street in 2002, he was told by my firm and others that the firms were just following the rules in place at the time. That was true. We were following the rules. But from Eliot Spitzer's perspective, that was not a reasonable defense. The rules that we were following, Spitzer said, created big conflicts of interest—an observation that I certainly agreed with. And in the wake of Spitzer's allegations, the rules governing the interaction between bankers and analysts were changed.

And now, a decade later, we find ourselves in the same situation.

Whatever rules Morgan Stanley is saying it followed when it decided to share bad news about Facebook with some clients and not others are grossly unfair rules.

And those rules need to be changed.

(Morgan Stanley did not respond to an email in which I offered to discuss this.)